IOSCO Requirements for Distribution of Complex Financial Products
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-02-15
On January 21, 2013, the International Organization of Securities Commissions (IOSCO), of which the Financial Industry Regulatory Authority, Inc. is an affiliate member, published its final report on Suitability Requirements With Respect to the Distribution of Complex Financial Products. The report can be found at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD400.pdf.
The report sets forth nine principles relating to the distribution of complex products by “intermediaries” (defined below), and, for each of the principles, “means of implementation,” which include suggested regulatory changes and detailed guidance for intermediaries. The purpose of the principles is to “promote robust customer protection in connection with the distribution of complex financial products by intermediaries,” including providing guidance on how the applicable suitability requirements should be implemented. The principles are intended to address concerns raised by regulatory authorities and others about sales of structured products, particularly to retail investors. The focus is on not only the point of sale but also on the intermediary’s internal procedures related to suitability determinations.
Many of the themes raised in the report have also been discussed by U.S. regulatory authorities in the past year, including suitability and sales practices. The report suggests that regulators should have the power to impose outright bans on sales of some complex financial products in certain situations. Of course, each jurisdiction has a different legal and regulatory regime and, as a result, the report contains certain general statements that would not be uniformly applicable.